Based in Chicago, banking executive Colin Robertson serves as the managing director of fixed income for Northern Trust Asset Management. Colin Robertson has spent most of his career in finance in Chicago handling clients’ bond accounts.
Bonds are one type of fixed income investment, so named because they return a specified interest rate that serves as income for a designated period of time. They do not undergo the fluctuations in value that stocks typically experience over time.
Among the most common fixed income instruments are U.S. Treasuries, which are backed by the federal government. They are considered to be risk-free, since the government can (in theory) always create more currency with which to pay investors when the bond’s term expires. Treasury bonds pay out in as little as 30 days or as long as 30 years.
In money market accounts, funds from large corporations are added to the mix. They usually mature in less than one year to reduce the impact of interest rate volatility. Money markets are often used to finance corporate payrolls.
Companies with good credit can issue investment-grade corporate bonds. On a semi-annual basis they have a slightly higher yield than treasury bonds of like duration.
High-yield bonds (also known as junk bonds) pay higher returns than conventional bonds. The entities that issue them have credit ratings that are below normal or non-existent. The longest they can hold the principal is a few years, because of holders’ fears the issuers may default over longer maturities.
Certificates of deposit enable banks to raise funds for making loans. Designated for a period of months and years, they provide a low but safe return and are protected by the Federal Deposit Insurance Corporation.
Finally, cities issue municipal bonds, typically for 20-year periods, to raise money for infrastructure improvements and other purposes. One of their strongest selling points is that they are tax exempt.